What is an HRA?
Health Reimbursement Arrangements (HRAs) are defined contribution plans that employers own and control for the benefit of their employees. HRAs are 100% employer funded and represent an employer’s commitment to pay for certain healthcare expenses for their employees. If the employer chooses, employees’ dependents may also be covered. Employers set the coverage “rules” for HRAs, but they are governed by Section 105(H) of the IRS Code. HRAs are considered group health plans and are subject to COBRA, ERISA, and HIPAA regulations.
Advantages of HRAs
HRAs are a great option for employers and employees because of the tax advantages and benefits in how healthcare expenses can be paid. Employer reimbursements for qualified healthcare expenses are tax-deductible for the employer and tax-exempt for employees in the HRA. For groups of less than 100 employees, there is no IRS reporting requirement. Groups of 100 employees or more are required to complete and file form 5500.
In addition to these benefits, employers choose HRAs because they have broad latitude to establish the rules for contributions and reimbursement. For example, employers can choose:
- How much to reimburse, in what amounts and in what order. They can decide if they or the employee will pay first.
- When to reimburse. Employers can decide to fund monthly, quarterly or annually and in which plan year. They can also set a funding limit so that additional funding isn’t allowed until the account balance falls below the limit.
- What to reimburse – just the deductible or a broad range of healthcare expenses defined in Section 213(d) of the IRS code.
- If funds will rollover to the next plan year.
- Who to cover – employees only or employees and their dependents.
- What health plans to combine with an HRA – carrier approved HMOs or traditional and high deductible PPOs.
Regardless of the employer rules, employees enjoy the benefits of reduced out-of-pocket expenses.
Sterling HRA Services
Sterling services help employers with hands-on plan set-up and administration, all delivered with our unique brand of high-touch customer service:
- Employer needs assessment, HRA plan development and enrollment
- Plan document preparation and distribution, including the corporate resolution adopting the HRA, the adoption agreement, and the Summary Plan Description (SPD).
- Participate in employee enrollment meetings to answer questions and help with the process
- Participant HRA set up, including welcome letters and issuance of debit cards
- Healthcare expense claim review and payment of bills direct to providers or as reimbursement to the employee participant, depending upon how the employer sets up the account
- Prepare Form 5500 for HRA clients with 100 or more employees enrolled in the HRA. Prepare ERISA Wrap plan documents necessary for employers with large and small groups to comply with ERISA relating to their Welfare Benefit Plans. There is an additional fee for the ERISA Wrap and Form 5500 filing services.
- Nondiscrimination testing mid-year (if requested) and annually to insure compliance
- Accounting and reconciliation of employer funds
- Quarterly reporting to employers
About Participant Eligibility
With few exceptions, almost all employees can participate in an HRA. Exceptions include partners in a business, members of LLCs, and shareholders who own 2% or more in S-corporations. Employers can cover employees only or employees and their dependents, as well as domestic partners as long as they meet the IRS Section 152 definitions. Employers can also choose to provide HRAs to retirees and former employees.
HRAs cannot discriminate in favor of highly compensated employees. Annual nondiscrimination testing is required with an HRA to insure that the employer meets participant eligibility requirements. Sterling offers nondiscrimination testing annually and midway through the plan, if employers request, for compliance.
HRA Plans and Fees
Sterling offers two competitively priced HRA plans and a myriad of services to support them. Employers can choose the Basic or Comprehensive Plan to set the reimbursement parameters for employees enrolled in the HRA. The Basic Plan reimburses for embedded deductibles, split percent plans, and bridge deductible plans. The Comprehensive Plan reimburses for expenses qualifying under IRS Section 213(d) and includes all qualified medical, dental and vision expenses. Employers can also set up a stand-alone HRA that provides benefits only for dental and vision.
For details on HRA plans and pricing options from Sterling, contact us today.